S.Amdt. 4061

SA 4061. Mr. CHAMBLISS submitted an amendment intended to be proposed
to amendment SA 3739 proposed by Mr. Reid (for Mr. Dodd (for himself
and Mrs. Lincoln)) to the bill S. 3217, to promote the financial
stability of the United States by improving accountability and
transparency in the financial system, to end ``too big to fail'', to
protect the American taxpayer by ending bailouts, to protect consumers
from abusive financial services practices, and for other purposes;
which was ordered to lie on the table; as follows:

Beginning on page 539, strike line 14 and all that follows
through page 584, line 7, and insert the following:
``(33) Major swap participant.--
``(A) In general.--The term `major swap participant' means
any person who is not a swap dealer, and--
``(i)(I) maintains a substantial net position in swaps for
any of the major swap categories as determined by the
Commission, excluding--

``(aa) positions held for hedging or mitigating commercial
risk, including operating risk and balance sheet risk, of
such person or its affiliates; and
``(bb) positions maintained by any employee benefit plan
(or any contract held by such a plan) as defined in
paragraphs (3) and (32) of section 3 of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1002) for
the primary purpose of hedging or mitigating any risk
directly associated with the operation of the plan; and

``(II) whose outstanding swaps create substantial net
counterparty exposure that could have serious adverse effects
on the financial stability of the United States banking
system or financial markets; or
``(ii)(I) is a financial entity, other than an entity
predominantly engaged in providing customer financing for the
purchase of an affiliate's merchandise or manufactured goods,
that is highly leveraged relative to the amount of capital it
holds;
``(II) maintains a substantial net position in outstanding
swaps in any major swap category as determined by the
Commission; and
``(III) whose outstanding swaps create substantial net
counterparty exposure that could have serious adverse effects
on the financial stability of the United States banking
system or financial markets.
``(B) Definition of substantial net position.--For purposes
of subparagraph (A), the Commission shall define by rule or
regulation the term `substantial net position' to mean a
position after application of legally enforceable netting or
collateral arrangements that meets a threshold the Commission
determines to be prudent for the effective monitoring,
management, and oversight of entities that are systemically
important or can significantly impact the financial system of
the United States.
``(C) Scope of designation.--For purposes of subparagraph
(A), a person may be designated as a major swap participant
for 1 or more categories of swaps without being classified as
a major swap participant for all classes of swaps.
``(D) Capital.--In setting capital requirements for a
person that is designated as a major swap participant for a
single type or single class or category of swaps or
activities, the prudential regulator and the Commission shall
take into account the risks associated with other types of
swaps or classes of swaps or categories of swaps engaged in
by virtue of the status of the person as a major swap
participant.'';
(17) by inserting after paragraph (38) (as redesignated by
paragraph (1)) the following:
``(39) Prudential regulator.--The term `prudential
regulator' means--
``(A) the Office of the Comptroller of the Currency, in the
case of--
``(i) any national banking association;
``(ii) any Federal branch or agency of a foreign bank; or
``(iii) any Federal savings association;
``(B) the Federal Deposit Insurance Corporation, in the
case of--
``(i) any insured State bank;
``(ii) any foreign bank having an insured branch; or
``(iii) any State savings association;
``(C) the Board of Governors of the Federal Reserve System,
in the case of--
``(i) any noninsured State member bank;
``(ii) any branch or agency of a foreign bank with respect
to any provision of the Federal Reserve Act (12 U.S.C. 221 et
seq.) which is made applicable under the International
Banking Act of 1978 (12 U.S.C. 3101 et seq.);
``(iii) any foreign bank which does not operate an insured
branch;
``(iv) any agency or commercial lending company other than
a Federal agency; or
``(v) supervisory or regulatory proceedings arising from
the authority given to the Board of Governors under section
7(c)(1) of the International Banking Act of 1978 (12 U.S.C.
3105(c)(1)), including such proceedings under the Financial
Institutions Supervisory Act of 1966 (12 U.S.C. 1464 et
seq.); and
``(D) the Farm Credit Administration, in the case of a swap
dealer, major swap participant, security-based swap dealer,
or major security-based swap participant that is an
institution chartered under the Farm Credit Act of 1971 (12
U.S.C. 2001 et seq.).'';
(18) in paragraph (40) (as redesignated by paragraph (1))--
(A) by striking subparagraph (B);
(B) by redesignating subparagraphs (C), (D), and (E) as
subparagraphs (B), (C), and (F), respectively;
(C) in subparagraph (C) (as so redesignated), by striking
``and'';
(D) by inserting after subparagraph (C) (as so
redesignated) the following:
``(D) a swap execution facility registered under section
5h;
``(E) a swap data repository; and'';
(19) by inserting after paragraph (41) (as redesignated by
paragraph (1)) the following:
``(42) Security-based swap.--The term `security-based swap'
has the meaning given the term in section 3(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)).
``(43) Security-based swap dealer.--The term `security-
based swap dealer' has the meaning given the term in section
3(a) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)).'';

[[Page S3843]]

(20) in paragraph (46) (as redesignated by paragraph (1)),
by striking ``subject to section 2(h)(7)'' and inserting
``subject to section 2(h)(5)'';
(21) by inserting after paragraph (46) (as redesignated by
paragraph (1)) the following:
``(47) Swap.--
``(A) In general.--Except as provided in subparagraph (B),
the term `swap' means any agreement, contract, or
transaction--
``(i) that is a put, call, cap, floor, collar, or similar
option of any kind that is for the purchase or sale, or based
on the value, of 1 or more interest or other rates,
currencies, commodities, securities, instruments of
indebtedness, indices, quantitative measures, or other
financial or economic interests or property of any kind;
``(ii) that provides for any purchase, sale, payment, or
delivery (other than a dividend on an equity security) that
is dependent on the occurrence, nonoccurrence, or the extent
of the occurrence of an event or contingency associated with
a potential financial, economic, or commercial consequence;
``(iii) that provides on an executory basis for the
exchange, on a fixed or contingent basis, of 1 or more
payments based on the value or level of 1 or more interest or
other rates, currencies, commodities, securities, instruments
of indebtedness, indices, quantitative measures, or other
financial or economic interests or property of any kind, or
any interest therein or based on the value thereof, and that
transfers, as between the parties to the transaction, in
whole or in part, the financial risk associated with a future
change in any such value or level without also conveying a
current or future direct or indirect ownership interest in an
asset (including any enterprise or investment pool) or
liability that incorporates the financial risk so
transferred, including any agreement, contract, or
transaction commonly known as--

``(I) an interest rate swap;
``(II) a rate floor;
``(III) a rate cap;
``(IV) a rate collar;
``(V) a cross-currency rate swap;
``(VI) a basis swap;
``(VII) a currency swap;
``(VIII) a foreign exchange swap;
``(IX) a total return swap;
``(X) an equity index swap;
``(XI) an equity swap;
``(XII) a debt index swap;
``(XIII) a debt swap;
``(XIV) a credit spread;
``(XV) a credit default swap;
``(XVI) a credit swap;
``(XVII) a weather swap;
``(XVIII) an energy swap;
``(XIX) a metal swap;
``(XX) an agricultural swap;
``(XXI) an emissions swap; and
``(XXII) a commodity swap;

``(iv) that is an agreement, contract, or transaction that
is, or in the future becomes commonly known to the trade as a
swap;
``(v) including any security-based swap agreement which
meets the definition of `swap agreement' as defined in
section 206A of the Gramm-Leach-Bliley Act (15 U.S.C. 78c
note) of which a material term is based on the price, yield,
value, or volatility of any security or any group or index of
securities, or any interest therein; or
``(vi) that is any combination or permutation of, or option
on, any agreement, contract, or transaction described in any
of clauses (i) through (v).
``(B) Exclusions.--The term `swap' does not include--
``(i) any contract of sale of a commodity for future
delivery (or option on such a contract), leverage contract
authorized under section 19, security futures product, or
agreement, contract, or transaction described in section
2(c)(2)(C)(i) or section 2(c)(2)(D)(i);
``(ii) any sale of a nonfinancial commodity or security for
deferred shipment or delivery, so long as the transaction is
intended to be physically settled;
``(iii) any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of
securities, including any interest therein or based on the
value thereof, that is subject to--

``(I) the Securities Act of 1933 (15 U.S.C. 77a et seq.);
and
``(II) the Securities Exchange Act of 1934 (15 U.S.C. 78a
et seq.);

``(iv) any put, call, straddle, option, or privilege
relating to a foreign currency entered into on a national
securities exchange registered pursuant to section 6(a) of
the Securities Exchange Act of 1934 (15 U.S.C. 78f(a));
``(v) any agreement, contract, or transaction providing for
the purchase or sale of 1 or more securities on a fixed basis
that is subject to--

``(I) the Securities Act of 1933 (15 U.S.C. 77a et seq.);
and
``(II) the Securities Exchange Act of 1934 (15 U.S.C. 78a
et seq.);

``(vi) any agreement, contract, or transaction providing
for the purchase or sale of 1 or more securities on a
contingent basis that is subject to the Securities Act of
1933 (15 U.S.C. 77a et seq.) and the Securities Exchange Act
of 1934 (15 U.S.C. 78a et seq.), unless the agreement,
contract, or transaction predicates the purchase or sale on
the occurrence of a bona fide contingency that might
reasonably be expected to affect or be affected by the
creditworthiness of a party other than a party to the
agreement, contract, or transaction;
``(vii) any note, bond, or evidence of indebtedness that is
a security, as defined in section 2(a) of the Securities Act
of 1933 (15 U.S.C. 77b(a));
``(viii) any agreement, contract, or transaction that is--

``(I) based on a security; and
``(II) entered into directly or through an underwriter (as
defined in section 2(a) of the Securities Act of 1933 (15
U.S.C. 77b(a))) by the issuer of such security for the
purposes of raising capital, unless the agreement, contract,
or transaction is entered into to manage a risk associated
with capital raising;

``(ix) any agreement, contract, or transaction a
counterparty of which is a Federal Reserve bank, the Federal
Government, or a Federal agency that is expressly backed by
the full faith and credit of the United States; and
``(x) any security-based swap, other than a security-based
swap as described in subparagraph (D).
``(C) Rule of construction regarding master agreements.--
``(i) In general.--Except as provided in clause (ii), the
term `swap' includes a master agreement that provides for an
agreement, contract, or transaction that is a swap under
subparagraph (A), together with each supplement to any master
agreement, without regard to whether the master agreement
contains an agreement, contract, or transaction that is not a
swap pursuant to subparagraph (A).
``(ii) Exception.--For purposes of clause (i), the master
agreement shall be considered to be a swap only with respect
to each agreement, contract, or transaction covered by the
master agreement that is a swap pursuant to subparagraph (A).
``(D) Mixed swap.--The term `security-based swap' includes
any agreement, contract, or transaction that is as described
in section 3(a)(68)(A) of the Securities Exchange Act of 1934
(15 U.S.C. 78c(a)(68)(A)) and also is based on the value of 1
or more interest or other rates, currencies, commodities,
instruments of indebtedness, indices, quantitative measures,
other financial or economic interest or property of any kind
(other than a single security or a narrow-based security
index), or the occurrence, non-occurrence, or the extent of
the occurrence of an event or contingency associated with a
potential financial, economic, or commercial consequence
(other than an event described in subparagraph (A)(iii)).
``(E) Treatment of foreign exchange swaps and forwards.--
``(i) In general.--Foreign exchange swaps and foreign
exchange forwards shall be considered swaps under this
paragraph unless the Secretary makes a written determination
that either foreign exchange swaps or foreign exchange
forwards or both--

``(I) should be not be regulated as swaps under this Act;
and
``(II) are not structured to evade the Wall Street
Transparency and Accountability Act of 2010 in violation of
any rule promulgated by the Commission pursuant to section
111(c) of that Act.

``(ii) Congressional notice; effectiveness.--The Secretary
shall submit any written determination under clause (i) to
the appropriate committees of Congress, including the
Committee on Agriculture, Nutrition, and Forestry of the
Senate and the Committee on Agriculture of the House of
Representatives. Any such written determination by the
Secretary shall not be effective until it is submitted to the
appropriate committees of Congress.
``(iii) Reporting.--Notwithstanding a written determination
by the Secretary under clause (i), all foreign exchange swaps
and foreign exchange forwards shall be reported to either a
swap data repository, or, if there is no swap data repository
that would accept such swaps or forwards, to the Commission
pursuant to section 4r within such time period as the
Commission may by rule or regulation prescribe.
``(iv) Business standards.--Notwithstanding clauses (ix)
and (x) of subparagraph (B) and clause (ii), any party to a
foreign exchange swap or forward that is a swap dealer or
major swap participant shall conform to the business conduct
standards contained in section 4s(h).
``(v) Secretary.--For purposes of this subparagraph only,
the term `Secretary' means the Secretary of the Treasury.
``(F) Exception for certain foreign exchange swaps and
forwards.--
``(i) Registered entities.--Any foreign exchange swap and
any foreign exchange forward that is listed and traded on or
subject to the rules of a designated contract market or a
swap execution facility, or that is cleared by a derivatives
clearing organization shall not be exempt from any provision
of this Act or amendments made by the Wall Street
Transparency and Accountability Act of 2010 prohibiting fraud
or manipulation.
``(ii) Retail transactions.--Nothing in subparagraph (E)
shall affect, or be construed to affect, the applicability of
this Act or the jurisdiction of the Commission with respect
to agreements, contracts, or transactions in foreign currency
pursuant to section 2(c)(2).
``(48) Swap data repository.--The term `swap data
repository' means any person that collects, calculates,
prepares, or maintains information or records with respect to
transactions or positions in, or the terms and conditions of,
swaps entered into by third parties.
``(49) Swap dealer.--
``(A) In general.--The term `swap dealer' means any person
who--

[[Page S3844]]

``(i) holds itself out as a dealer in swaps;
``(ii) makes a market in swaps;
``(iii) regularly engages in the purchase and sale of swaps
to customers as its ordinary course of business; and
``(iv) engages in any activity causing the person to be
commonly known in the trade as a dealer or market maker in
swaps.
``(B) Inclusion.--A person may be designated as a swap
dealer for a single type or single class or category of swap
or activities and considered not to be a swap dealer for
other types, classes, or categories of swaps or activities.
``(C) Capital.--In setting capital requirements for a
person that is designated as a swap dealer for a single type
or single class or category of swap or activities, the
prudential regulator and the Commission shall take into
account the risks associated with other types of swaps or
classes of swaps or categories of swaps engaged in by virtue
of the status of the person as a swap dealer.
``(D) Exception.--The term `swap dealer' does not include a
person that buys or sells swaps for such person's own
account, either individually or in a fiduciary capacity, or
on behalf of any affiliates of such person, unless it does so
as a market maker and as a part of a regular business.
``(50) Swap execution facility.--The term `swap execution
facility' means a facility in which multiple participants
have the ability to execute or trade swaps by accepting bids
and offers made by other participants that are open to
multiple participants in the facility or system, through any
means of interstate commerce, including any trading facility,
that--
``(A) facilitates the execution of swaps between persons;
and
``(B) is not a designated contract market.''; and
(22) in paragraph (51) (as redesignated by paragraph (1)),
in subparagraph (A)(i), by striking ``partipants'' and
inserting ``participants''.
(b) Authority to Define Terms.--The Commodity Futures
Trading Commission may adopt a rule to define--
(1) the term ``commercial risk''; and
(2) any other term included in an amendment to the
Commodity Exchange Act (7 U.S.C. 1 et seq.) made by this
subtitle.
(c) Modification of Definitions.--To include transactions
and entities that have been structured to evade this subtitle
(or an amendment made by this subtitle), the Commodity
Futures Trading Commission shall adopt a rule to further
define the terms ``swap'', ``swap dealer'', ``major swap
participant'', and ``eligible contract participant''.
(d) Exemptions.--Section 4(c)(1) of the Commodity Exchange
Act (7 U.S.C. 6(c)(1)) is amended by striking ``except that''
and all that follows through the period at the end and
inserting the following: ``except that--
``(A) unless the Commission is expressly authorized by any
provision described in this subparagraph to grant exemptions,
with respect to amendments made by subtitle A of the Wall
Street Transparency and Accountability Act of 2010--
``(i) with respect to--

``(I) paragraphs (2), (3), (4), (5), and (7), clause
(vii)(III) of paragraph (17), paragraphs (23), (24), (31),
(32), (38), (39), (41), (42), (46), (47), (48), and (49) of
section 1a, and sections 2(a)(13), 2(c)(D), 4a(a), 4a(b),
4d(c), 4d(d), 4r, 4s, 5b(a), 5b(b), 5(d), 5(g), 5(h), 5b(c),
5b(i), 8e, and 21; and
``(II) section 206(e) of the Gramm-Leach-Bliley Act (Public
Law 106-102; 15 U.S.C. 78c note); and

``(ii) in subsection (c) of section 111 and section 132;
and
``(B) the Commission and the Securities and Exchange
Commission may by rule, regulation, or order jointly exclude
any agreement, contract, or transaction from section
2(a)(1)(D)) if the Commission determines that the exemption
would be consistent with the public interest.''.
(e) Conforming Amendments.--
(1) Section 2(c)(2)(B)(i)(II) of the Commodity Exchange Act
(7 U.S.C. 2(c)(2)(B)(i)(II)) is amended--
(A) in item (cc)--
(i) in subitem (AA), by striking ``section 1a(20)'' and
inserting ``section 1a''; and
(ii) in subitem (BB), by striking ``section 1a(20)'' and
inserting ``section 1a''; and
(B) in item (dd), by striking ``section 1a(12)(A)(ii)'' and
inserting ``section 1a(18)(A)(ii)''.
(2) Section 4m(3) of the Commodity Exchange Act (7 U.S.C.
6m(3)) is amended by striking ``section 1a(6)'' and inserting
``section 1a''.
(3) Section 4q(a)(1) of the Commodity Exchange Act (7
U.S.C. 6o-1(a)(1)) is amended by striking ``section 1a(4)''
and inserting ``section 1a(9)''.
(4) Section 5(e)(1) of the Commodity Exchange Act (7 U.S.C.
7(e)(1)) is amended by striking ``section 1a(4)'' and
inserting ``section 1a(9)''.
(5) Section 5a(b)(2)(F) of the Commodity Exchange Act (7
U.S.C. 7a(b)(2)(F)) is amended by striking ``section 1a(4)''
and inserting ``section 1a(9)''.
(6) Section 5b(a) of the Commodity Exchange Act (7 U.S.C.
7a-1(a)) is amended, in the matter preceding paragraph (1),
by striking ``section 1a(9)'' and inserting ``section 1a''.
(7) Section 5c(c)(2)(B) of the Commodity Exchange Act (7
U.S.C. 7a-2(c)(2)(B)) is amended by striking ``section
1a(4)'' and inserting ``section 1a(9)''.
(8) Section 6(g)(5)(B)(i) of the Securities Exchange Act of
1934 (15 U.S.C. 78f(g)(5)(B)(i)) is amended--
(A) in subclause (I), by striking ``section 1a(12)(B)(ii)''
and inserting ``section 1a(18)(B)(ii)''; and
(B) in subclause (II), by striking ``section 1a(12)'' and
inserting ``section 1a(18)''.
(9) The Legal Certainty for Bank Products Act of 2000 (7
U.S.C. 27 et seq.) is amended--
(A) in section 402--
(i) in subsection (a)(7), by striking ``section 1a(20)''
and inserting ``section 1a'';
(ii) in subsection (b)(2), by striking ``section 1a(12)''
and inserting ``section 1a'';
(iii) in subsection (c), by striking ``section 1a(4)'' and
inserting ``section 1a''; and
(iv) in subsection (d)--

(I) in the matter preceding paragraph (1), by striking
``section 1a(4)'' and inserting ``section 1a(9)'';
(II) in paragraph (1)--

(aa) in subparagraph (A), by striking ``section 1a(12)''
and inserting ``section 1a''; and
(bb) in subparagraph (B), by striking ``section 1a(33)''
and inserting ``section 1a'';

(III) in paragraph (2)--

(aa) in subparagraph (A), by striking ``section 1a(10)''
and inserting ``section 1a'';
(bb) in subparagraph (B), by striking ``section
1a(12)(B)(ii)'' and inserting ``section 1a(18)(B)(ii)'';
(cc) in subparagraph (C), by striking ``section 1a(12)''
and inserting ``section 1a(18)''; and
(dd) in subparagraph (D), by striking ``section 1a(13)''
and inserting ``section 1a''; and
(B) in section 404(1), by striking ``section 1a(4)'' and
inserting ``section 1a''.

SEC. 722. JURISDICTION.

(a) Exclusive Jurisdiction.--Section 2(a)(1)(A) of the
Commodity Exchange Act (7 U.S.C. 2(a)(1)(A)) is amended in
the first sentence--
(1) by inserting ``the Wall Street Transparency and
Accountability Act of 2010 (including an amendment made by
that Act) and'' after ``otherwise provided in'';
(2) by striking ``(c) through (i) of this section'' and
inserting ``(c) and (f)'';
(3) by striking ``contracts of sale'' and inserting ``swaps
or contracts of sale''; and
(4) by striking ``or derivatives transaction execution
facility registered pursuant to section 5 or 5a'' and
inserting ``pursuant to section 5''.
(b) Regulation of Swaps Under Federal and State Law.--
Section 12 of the Commodity Exchange Act (7 U.S.C. 16) is
amended by adding at the end the following:
``(h) Regulation of Swaps as Insurance Under State Law.--A
swap--
``(1) shall not be considered to be insurance; and
``(2) may not be regulated as an insurance contract under
the law of any State.''.
(c) Agreements, Contracts, and Transactions Traded on an
Organized Exchange.--Section 2(c)(2)(A) of the Commodity
Exchange Act (7 U.S.C. 2(c)(2)(A)) is amended--
(1) in clause (i), by striking ``or'' at the end;
(2) by redesignating clause (ii) as clause (iii); and
(3) by inserting after clause (i) the following:
``(ii) a swap; or''.
(d) Applicability.--Section 2 of the Commodity Exchange Act
(7 U.S.C. 2) (as amended by section 723(a)(3)) is amended by
adding at the end the following:
``(i) Applicability.--The provisions of this Act relating
to swaps that were enacted by the Wall Street Transparency
and Accountability Act of 2010 (including any rule prescribed
or regulation promulgated under that Act), shall not apply to
activities outside the United States unless those
activities--
``(1) have a direct and significant connection with
activities in, or effect on, commerce of the United States;
or
``(2) contravene such rules or regulations as the
Commission may prescribe or promulgate as are necessary or
appropriate to prevent the evasion of any provision of this
Act that was enacted by the Wall Street Transparency and
Accountability Act of 2010.''.

SEC. 723. CLEARING.

(a) Clearing Requirement.--
(1) In general.--Section 2 of the Commodity Exchange Act (7
U.S.C. 2) is amended--
(A) by striking subsections (d), (e), (g), and (h); and
(B) by redesignating subsection (i) as subsection (g).
(2) Swaps; limitation on participation.--Section 2 of the
Commodity Exchange Act (7 U.S.C. 2) (as amended by paragraph
(1)) is amended by inserting after subsection (c) the
following:
``(d) Swaps.--Nothing in this Act (other than subparagraphs
(A), (B), (C), and (D) of subsection (a)(1), subsections (f)
and (g), sections 1a, 2(c)(2)(A)(ii), 2(e), 2(h), 4(c), 4a,
4b, and 4b-1, subsections (a), (b), and (g) of section 4c,
sections 4d, 4e, 4f, 4g, 4h, 4i, 4j, 4k, 4l, 4m, 4n, 4o, 4p,
4r, 4s, 4t, 5, 5b, 5c, 5e, and 5h, subsections (c) and (d) of
section 6, sections 6c, 6d, 8, 8a, and 9, subsections (e)(2)
and (f) of section 12, subsections (a) and (b) of section 13,
sections 17, 20, 21, and 22(a)(4), and any other provision of
this Act that is applicable to registered entities and
Commission registrants) governs or applies to a swap.
``(e) Limitation on Participation.--It shall be unlawful
for any person, other than an eligible contract participant,
to enter into a swap unless the swap is entered into on, or
subject to the rules of, a board of trade designated as a
contract market under section 5.''.

[[Page S3845]]

(3) Mandatory clearing of swaps.--Section 2 of the
Commodity Exchange Act (7 U.S.C. 2) is amended by inserting
after subsection (g) (as redesignated by paragraph (1)(B))
the following:
``(h) Clearing Requirement.--
``(1) Open access.--The rules of a registered derivatives
clearing organization shall--
``(A) prescribe that all swaps with the same terms and
conditions are economically equivalent and may be offset with
each other within the derivatives clearing organization; and
``(B) provide for nondiscriminatory clearing of a swap
executed bilaterally or on or through the rules of an
unaffiliated designated contract market or swap execution
facility, subject to the requirements of section 5b.
``(2) Swaps subject to mandatory clearing requirement.--
``(A) In general.--In accordance with subparagraph (B), the
Commission shall, jointly with the Securities and Exchange
Commission and the Federal Reserve Board of Governors, adopt
rules to establish criteria for determining that a swap or
group, category, type, or class of swap is required to be
cleared.
``(B) Factors.--In carrying out subparagraph (A), the
following factors shall be considered:
``(i) Whether 1 or more derivatives clearing organizations
or clearing agencies accepts the swap or group, category,
type, or class of swap for clearing.
``(ii) Whether the swap or group, category, type, or class
of swap is traded pursuant to standard documentation and
terms.
``(iii) The liquidity of the swap or group, category, type,
or class of swap and its underlying commodity, security,
security of a reference entity, or group or index thereof.
``(iv) The ability to value the swap or group, category,
type, or class of swap and its underlying commodity,
security, security of a reference entity, or group or index
thereof consistent with an accepted pricing methodology,
including the availability of intraday prices.
``(v) The size of the market for the swap or group,
category, type, or class of swap and the available capacity,
operational expertise, and resources of the derivatives
clearing organization or clearing agency that accepts it for
clearing.
``(vi) Whether a clearing mandate would mitigate risk to
the financial system or whether it would unduly concentrate
risk in a clearing participant, derivatives clearing
organization, or clearing agency in a manner that could
threaten the solvency of that clearing participant, the
derivatives clearing organization, or the clearing agency.
``(vii) Such other factors as the Commission, the
Securities and Exchange Commission, and the Federal Reserve
Board of Governors jointly may determine are relevant.
``(C) Swaps subject to clearing requirement.--The
Commission--
``(i) shall review each swap, or any group, category, type,
or class of swap that is currently listed for clearing and
those which a derivatives clearing organization notifies the
Commission that the derivatives clearing organization plans
to list for clearing after the date of enactment of this
subsection;
``(ii) except as provided in paragraph (3), may require,
pursuant to the rules adopted under subparagraph (A) and
through notice-and-comment rulemaking, that a particular
swap, group, category, type, or class of swap must be
cleared; and
``(iii) shall rely on economic analysis provided by
economists of the Commission in making any determination
under clause (ii).
``(D) Effect.--
``(i) In general.--Nothing in this paragraph affects the
ability of a derivatives clearing organization to list for
permissive clearing any swap, or group, category, type, or
class of swaps.
``(ii) Prohibition.--The Commission shall not compel a
derivatives clearing organization to list a swap, group,
category, type, or class of swap for clearing if the
derivatives clearing organization determines that the swap,
group, category, type, or class of swap would adversely
impact its business operations, or impair the financial
integrity of the derivatives clearing organization.
``(iii) Required exemption.--The Commission shall exempt a
swap from the requirements of subparagraph (C), if no
derivatives clearing organization registered under this Act
or no derivatives clearing organization that is exempt from
registration under section 5b(j) of this Act will accept the
swap for clearing.
``(E) Prevention of evasion.--The Commission may prescribe
rules, or issue interpretations of such rules, as necessary
to prevent evasions of any requirement to clear under
subparagraph (C). In issuing such rules or interpretations,
the Commission shall consider--
``(i) the extent to which the terms of the swap, group,
category, type, or class of swap are similar to the terms of
other swaps, groups, categories, types, or classes of swap
that are required to be cleared by swap participants under
subparagraph (C); and
``(ii) whether there is an economic purpose for any
differences in the terms of the swap or group, category,
type, or class of swap that are required to be cleared by
swap participants under subparagraph (C).
``(F) Elimination of requirement to clear.--The Commission
may, pursuant to the rules adopted under subparagraph (A) and
through notice-and-comment rulemaking, rescind a requirement
imposed under subparagraph (C) with respect to a swap, group,
category, type, or class of swap.
``(G) Petition for rulemaking.--Any person may file a
petition, pursuant to the rules of practice of the
Commission, requesting that the Commission use its authority
under subparagraph (C) to require clearing of a particular
swap, group, category, type, or class of swap or to use its
authority under subparagraph (F) to rescind a requirement for
swap participants to clear a particular swap, group,
category, type, or class of swap.
``(H) Foreign exchange forwards, swaps, and options.--
Foreign exchange forwards, swaps, and options shall not be
subject to a clearing requirement under subparagraph (C)
unless the Department of the Treasury and the Board of
Governors determine that such a requirement is appropriate
after considering whether there exists an effective
settlement system for such foreign exchange forwards, swaps,
and options and any other factors that the Department of the
Treasury and the Board of Governors deem to be relevant.
``(3) End user clearing exemption.--
``(A) Definitions.--In this paragraph:
``(i) Commercial end user.--The term `commercial end user'
means any person who, as its primary business activity owns,
operates, uses, produces, processes, develops, leases,
manufacturers, distributes, merchandises, provides or markets
goods, services, physical assets, or commodities (which shall
include but not be limited to coal, natural gas, electricity,
biofuels, crude oil, gasoline, propane, distillates, and
other hydrocarbons) either individually or in a fiduciary
capacity.
``(ii) Financial entity end user.--

``(I) In general.--The term `financial entity end user'
means any person predominately engaged in activities that are
financial in nature, as determined by the Commission.
``(II) Exclusions.--The term `financial entity end user'
does not include--

``(aa) any person who is a swap dealer, security-based swap
dealer, major swap participant, major security-based swap
participant;
``(bb) an investment fund that would be an investment
company (as defined in section 3 of the Investment Company
Act o f 1940 (15 U.S.C. 80a-3)) but for paragraph (1) or (7)
of section 3(c) of that Act (15 U.S.C. 80a-3(c)); and is not
a partnership or other entity or any subsidiary that is
primarily invested in physical assets (which shall include
but not be limited to commercial real estate) directly or
through interests in partnerships or limited liability
companies that own such assets;
``(cc) entities defined in section 1303(20) of the Federal
Housing Enterprises Financial Safety and Soundness Act of
1992 (12 U.S.C. 4502(20));
``(dd) a commodity pool; or
``(ee) a commercial end user.
``(B) End user clearing exemption.--
``(i) In general.--Subject to clause (ii), in the event
that a swap is subject to the mandatory clearing requirement
under paragraph (2), and 1 of the counterparties to the swap
is a commercial end user or a financial entity end user, that
counterparty--

``(I)(aa) may elect not to clear the swap, as required
under paragraph (2); or
``(bb) may elect, prior to entering into the swap
transaction, to require clearing of the swap; and
``(II) if the end user makes an election under subclause
(I)(bb), shall have the sole right to select the derivatives
clearing organization at which the swap will be cleared.

``(ii) Limitation.--A commercial end user or a financial
entity end user may only make an election under clause (i) if
the end user is using the swap to hedge commercial risk,
including operating risk and balance sheet risk.
``(C) Treatment of affiliates.--
``(i) In general.--An affiliate of a commercial end user
(including affiliate entities predominantly engaged in
providing financing for the purchase of merchandise or
manufactured goods of the commercial end user) or a financial
entity end user may make an election under subparagraph
(B)(i) only if the affiliate uses the swap to hedge or
mitigate the commercial risk, including operating risk and
balance sheet risk, of the commercial end user or the
financial entity end user or other affiliate of the
commercial end user or financial entity end user.
``(ii) Prohibition relating to certain affiliates.--An
affiliate of a commercial end user or a financial entity end
user shall not use the exemption under subparagraph (B) if
the affiliate is--

``(I) a swap dealer;
``(II) a security-based swap dealer;
``(III) a major swap participant;
``(IV) a major security-based swap participant;
``(V) an investment fund that would be an investment
company (as defined in section 3 of the Investment Company
Act of 1940 (15 U.S.C. 80a-3)) but for paragraph (1) or (7)
of section 3(c) of that Act (15 U.S.C. 80a-3(c)); and is not
a partnership or other entity or any subsidiary that is
primarily invested in physical assets (which shall include
but not be limited to commercial real estate) directly or
through interests in partnerships or limited liability
companies that own such assets; or
``(VI) a commodity pool.

[[Page S3846]]

``(D) Abuse of exemption.--The Commission may prescribe
such rules or issue interpretations of the rules as the
Commission determines to be necessary to prevent abuse of the
exemption described in subparagraph (B). The Commission may
also request information from those entities claiming the
clearing exemption as necessary to prevent abuse of the
exemption described in subparagraph (B).
``(4) Required reporting.--Each swap that is not cleared by
any derivatives clearing organization shall be reported
either to a registered swap repository described in section
21 or, if there is no repository that would accept the swap,
to the Commission pursuant to section 4r.
``(5) Transition rules.--
``(A) Reporting transition rules.--The Commission shall
provide for the reporting of data, as follows:
``(i) Swaps entered into before date of enactment of this
subsection.--Swaps entered into before the date of the
enactment of this subsection shall be reported to a
registered swap repository or the Commission not later than
180 days after the effective date of this subsection.
``(ii) Swaps entered into on or after date of enactment of
this subsection.--Swaps entered into on or after such date of
enactment shall be reported to a registered swap repository
or the Commission not later than such time period as the
Commission prescribe.
``(B) Clearing transition rules.--Swaps entered into before
the effective date of any requirement under paragraph (2)(C)
are exempt from the clearing requirements of this subsection.
``(6) Reporting obligations.--
``(A) Swaps in which only 1 counterparty is a swap dealer
or major swap participant.--With respect to a swap in which
only 1 counterparty is a swap dealer or major swap
participant, the swap dealer or major swap participant shall
report the swap as required under paragraphs (4) and (5).
``(B) Swaps in which 1 counterparty is a swap dealer and
the other a major swap participant.--With respect to a swap
in which 1 counterparty is a swap dealer and the other a
major swap participant, the swap dealer shall report the swap
as required under paragraphs (4) and (5).
``(C) Other swaps.--With respect to any other swap not
described in subparagraph (A) or (B), the counterparties to
the swap shall select a counterparty to report the swap as
required under paragraphs (4) and (5).
``(7) Trade execution.--
``(A) In general.--With respect to transactions involving
swaps subject to the clearing requirement established under
paragraph (2), counterparties shall--
``(i) execute the transaction on a board of trade
designated as a contract market under section 5; or
``(ii) execute the transaction on a swap execution facility
registered under section 5h or a swap execution facility that
is exempt from registration under section 5h(f).
``(B) Exception.--The requirements of clauses (i) and (ii)
of subparagraph (A) shall not apply if no board of trade or
swap execution facility makes the swap available to trade or
in the case of a swap transaction for which a commercial end
or financial entity user opts to use the clearing exemption
under paragraph (3).
``(8) Required exemption.--The Commission shall exempt a
swap from the requirements of this subsection and any rules
issued under this subsection, if no derivatives clearing
organization registered under this Act or no derivatives
clearing organization that is exempt from registration under
section 5b(j) will accept the swap from clearing.''.
______